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Budget 2008 announced a review to consider the benefits of simplifying corporation tax calculations and statutory return obligations for smaller companies, (i.e. those with a turnover of less than £750,000 and with fewer than 10 employees). The review has involved HM Treasury and HM Revenue & Customs (HMRC) listening to business views of where complexity creates burdens and how these might be addressed. The Department for Business, Enterprise and Regulatory Reform (BERR) are also involved.

A discussion document issued today provides an update of the work of the review, and seeks further views. The document also notes a proposal being considered at EU level to allow Member States to vary accounting requirements for micro companies.

The document agrees that simplification of corporation tax calculations for smaller companies is a good idea in principle. However, there is no agreement on the form any simplification should take. There was no consensus on aligning tax and accounting requirements. Similarly, there was no consensus on the relative complexity of tax calculations for companies versus self-employed businesses, nor any particular support for integrating the two to arrive at a common set of rules.

The review will not take forward the following ideas:

• Statutory accounts profits to be used as taxable profits;
• Flat rate expense allowances, i.e. the expenses to be allowed against business income being set at a flat rate for all similar businesses.

Two other ideas will be taken forward:

• A possible new accounting standard which aligns current statutory accounting and tax calculation obligations; and
• a new tax regime based on cash flow.

The discussion document seeks responses to both these ideas.